WONG CHUNG MING DEVELOPMENT FUND CO LTD v. PROFIT SURPLUS LTD

CACV 239/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 239 OF 2008

(ON APPEAL FROM HCA NO. 335 OF 2008)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.  I agree with the reasons for judgment of Le Pichon JA.

Hon Le Pichon JA:

2.  This was an appeal from an order granted by Deputy High Court Judge Gill on 14 August 2008 restraining the plaintiff, pending trial, from “preventing, obstructing or hindering” the defendant from carrying out works to maintain and replace a drainage pipe running underground from the defendant’s building along a rear service lane to a public sewer at Cochrane Street, connecting the defendant’s drainage system to the pipe and using the pipe for drainage purposes.  The appeal was dismissed at the conclusion of the hearing with written reasons to be handed down, which we now do.

Background

3.  The plaintiff is the owner of nos. 31-33 Hollywood Road and the building on it.  Contiguous to it and situated to its west is the defendant’s land (nos. 35-37 Hollywood Road) on which it has recently erected a new commercial building.  Cochrane Street is situated to the east of the plaintiff’s property and between it and the plaintiff’s property is a property known as Hollywood House at nos. 29-31 Hollywood Road.

4.  The buildings at 29-37 Hollywood Road are situated on the north side of the road which slopes quite steeply down towards the north.  The rear or northern ends of the plots at 29-37 together form a service lane which opens onto Cochrane Street.  A section plan of the former building on no. 35 shows that the difference in level between Hollywood Road and the service lane is about one storey, Hollywood Road being level with the ground floor and the service lane with the basement level.

5.  As the judge described it,

“At the heart of the dispute is whether or not there is a private sewage system running across the rears of the two properties whose outlet is into a public sewage drain in Cochrane Street, and if so, whether that the defendant by owning its site has the right to feed into the system …”

6.  The land at 29-37 Hollywood Road used to be in common ownership.  It came to be subdivided in 1882.  By the 1890s, six houses had been erected on the site and drains apparently approved and constructed but no record of the location of the drains is available.

7.  In 1960, a tenement house consisting of several storeys and a basement was erected on no. 35.  In evidence is a drainage plan stamped “approved” on 29 August 1960.  It shows the existence of the service lane and depicts manholes at the rear and within the boundaries of each of, inter alia, 37, 35 and 33 Hollywood Road as well as an existing sullage drain connecting by manhole to the public sewer at Cochrane Street.

8.  The judge also recorded the existence of drainage plans submitted for the development of the plaintiff’s building at nos. 31-33 and of Hollywood House, post-dating the plan for no. 35, all depicting an “existing sewer” or an “existing private sewer” along the line of the service lane to the public drain in Cochrane Street but noted that while they depicted a manhole at each of those properties, in neither case was it shown to be servicing any building beyond.

9.  The tenement building erected in 1960 was demolished in 1995.  The site was used as a temporary car park for a number of years until a predecessor in title of the defendant commenced the construction of a new building spanning both nos. 35 and 37.  The defendant acquired the plot in 2006 when the building was only partially built and continued with the construction.

10.  The defendant’s architects wrote to the plaintiff as well as the owners of Hollywood House on 4 December 2006, asserting its right to use the existing drainage connections along the service lane but proposing an upgrade of the entire system at its own cost.  The defendant claims to be entitled to an easement, either under the doctrine of lost modern grant or an implied grant of an easement of necessity or quasi easement arising from the doctrine of Wheeldon v Burrows, or common intention.  Further letters were sent to the plaintiff in January and March 2007.  There was no response to any of these letters although there is evidence from the supervisor of the plaintiff’s management company to the effect that prior to receiving the March 2007 letter, when she was contacted by telephone, she had told a representative of the defendant’s architect that the defendant could not connect its drainage into the manhole situated within the plaintiff’s property.

11.  That notwithstanding, in March 2007, the defendant’s drainage system was connected to the existing system.  The connection work was uneventful.  Site meetings with the Drainage Services Department followed in May 2007 and January 2008 relating to the need to upgrade and replace the existing drainage system.  By then, a section of piping had been replaced.

12.  But a further meeting scheduled for February 2008 could not take place.  By that time, there had been confrontation with the plaintiff’s representatives who had proceeded to disconnect and dislocate the new pipes.  Even so, the defendant caused new pipes to be re-installed shortly thereafter.  However, another confrontation took place in early March 2008, at about the time when the plaintiff issued a writ seeking an injunction to restrain the defendant from connecting its drain pipes to the plaintiff’s drainage system.

13.  On about 10 May 2008, it came to the defendant’s attention that the plaintiff had carried construction work and some of the new pipes that the defendant had installed had been removed.  A sewage water flow test carried out by the defendant on 17 May 2008 showed that the defendant’s pipe connecting into the system was blocked or had been disconnected.

14.  The defendant applied for an interim injunction (the subject of this appeal) when the plaintiff did not respond to the notice giving it seven days to remove the blockage or make the connection.

15.  The judge was not only satisfied that there was a serious question to be tried but that there was a high degree of assurance that the defendant would succeed after trial.  He was not persuaded that damages would be an adequate remedy and, on the balance of convenience, he thought it clear cut that the circumstances favoured the granting of an interlocutory injunction.

16.  For reasons not readily apparent, the judge as well as counsel considered the injunction sought and granted to be a “mandatory” injunction.  In my view, that is a misnomer since the terms of the injunction granted did not require plaintiff to perform any positive act such as the demolition of a wall.  It was a negative injunction enjoining the plaintiff from “preventing, obstructing or hindering” the defendant from doing what was necessary to connect to the drainage system.

This appeal

Damages an adequate remedy?

17.  This appeal proceeded, except as will be referred to below, on the footing that the defendant had an arguable case that it was entitled to use the relevant sewer pipe, if for no other reason, that sewer pipe must have been used by the buildings at 29-37 Hollywood Road as their sewage outlet ever since sewage connection was used.  The principal point taken by Mr Yuen SC on this appeal was that the injunction should never have been granted, damages being an adequate remedy in the circumstances.  Reference was made to the well-known passage from the speech of Lord Diplock in American Cyanamid v Ethicon Ltd [1975] AC 396 at 408B-C:

“ …the governing principle is that the court should first consider whether, if the plaintiff were to succeed at the trial in establishing his right to a permanent injunction, he would be adequately compensated by an award of damages for the loss he would have sustained as a result of the defendant’s continuing to do what was sought to be enjoined between the time of the application and the time of the trial.  If damages in the measure recoverable at common law would be adequate remedy and the defendant would be in a financial position to pay them, no interlocutory injunction should normally be granted, however strong the plaintiff’s claim appeared to be at that stage.”

18.  The defendant’s new commercial building is all but complete.  However, unless it is able to connect into the drainage system along the service lane into Cochrane Street, it will not obtain an occupation permit.  That would mean that the building would have to lie vacant, pending the resolution by the court of its entitlement to connect to and use the drain.  There is a conflict of evidence as to the possibility of re-routing the drainage system so as to drain into the public sewer in Hollywood Road.  It would involve redesigning the drainage system and the use of a pump since the basement is at a lower level than Hollywood Road.  Not only is there disagreement as to the length of time and cost involved, whether relevant government consent would be forthcoming was also in contention.

19.  As I understand it, Mr Yuen’s position was that pending the resolution of the defendant’s entitlement to connect into the drainage system, the inability of the defendant to sell the completed building would mean a loss of profit, its inability to lease the building would result in a loss of rental and its inability to use the building itself would also be a monetary loss, being the rental to be paid for alternative accommodation meanwhile.  So it was said that the defendant’s loss in the three scenarios posited would be purely monetary.  On that basis, it was submitted that the injunction should not have issued.  In essence, Mr Yuen’s position was that so long as the defendant’s loss is capable of being assessed at common law, damages would be an adequate remedy and the difficulty involved in the assessment of damages is irrelevant.

20.  In the present case, if an interlocutory injunction were refused, contrary to Mr Yuen’s submissions, the loss to the defendant would not be confined to the three scenarios he posited.  Rather, as summarized by the judge (at §67 of his judgment),

“ it would result in an extraordinarily high level of loss of income and/or recovery of capital and inevitably the building would with the lack of use fall into disrepair.”

21.  Mr Yuen submitted that any repair or renovation required would be quantifiable and therefore reducible into a monetary sum.  His approach was that so long as the loss can be quantified, it is compensatable in damages, such as would render damages an “adequate remedy”.  In my view, Mr Yuen’s approach does not reflect the principles laid down by Lord Diplock.  It confuses the ability to assess damages at common law with the question whether such damages would be an “adequate remedy”.  The one does not follow from the other.  While common law damages may be assessed for all kinds of loss, whether it constitutes an “adequate remedy” is a different question.  The key consideration is whether an award of damages would adequately compensate the defendant.  In American Cyanamid, the loss of a business opportunity (i.e. the chance of continuing to increase total market share in a particular pharmaceutical product) was not a loss where an award of damages was considered adequate, although such a loss could be assessed at common law.

22.  In the present case, I have no doubt that damages would not be an adequate remedy for the loss the defendant would suffer if an interim injunction were denied and at the end of the day the defendant were held entitled to connect with and use the drainage system.  A completed building that has to be left unoccupied and unused for the period of time required for the resolution of the rights of the parties including any prospective appeals (which on any footing will be an extended period) would unquestionably deteriorate.  The defendant who would not be in a position to realise its investment (whether by sale or lease) would suffer additional losses that could include, inter alia, missed business opportunities by not being able to redeploy such profits or income.

23.  In short, I am of the view that the judge’s conclusion that damages would not be an adequate remedy cannot be impugned.

Balance of convenience

24.  The damage the defendant would suffer if an injunction were refused has already been considered.  In so far as it is suggested that an alternative drainage route could be put in place, even on the assumption that the alternative is a feasible alternative and proceeding on the basis of the plaintiff’s estimate, the whole exercise would not only involve considerable expenditure and a timeframe of at least nine months, much of the defendant’s basement would be rendered unusable in order to accommodate a redesigned drainage system.

25.  If the injunction were granted, the only damage the plaintiff could identify that it might suffer pending trial, is the risk of overloading.  The evidence takes the form of an assertion by Mr Jimmy Wong, a director of the plaintiff.  §28 of his affirmation dated 2 July 2008 reads:

“28.  Moreover, the full adverse effect of the Defendant’s connection to the Plaintiff’s drainage system is yet to be ascertained (especially bearing in mind the increase in units after the new building at the Defendant’s Premises is erected, which is far more than the number of units at the former building there). If any damage is resulted to the Plaintiff’s drains as a result of overloading, the loss caused to the Plaintiff is likely to be substantial.”

26.  The assertion does not appear to be supported by any evidence from professionals qualified to do so whereas there is evidence from the defendant’s architect who had performed the calculation himself and who had consulted an engineer for crosschecking that the pipe is well capable of serving the defendant’s new building, the plaintiff’s building and Hollywood House.

27.  At the hearing, Mr Yuen sought to elaborate on the kind of damage to the plaintiff’s premises were overloading to occur: he mentioned the possible flooding of the ground floor of the plaintiff’s property.  Bearing in mind the general topography of 29-37 of Hollywood Road, sloping down from Hollywood Road towards the service lane, the notion that the ground floor of the plaintiff’s building could be seriously affected by foul water from an overloaded drain and manhole situated at the northern end of the plaintiff’s property line seems a little far-fetched.  Then it was said that the plaintiff might be sued by its tenants.  But the plaintiff would be able to recover from the defendant any damages it has to pay if it should succeed at trial.

28.  The judge considered it “clear-cut” that the balance of convenience favoured the granting of the interlocutory injunction.  He was plainly right: the plaintiff’s evidence of damage “is a speculation”.  As the judge put it (at §73):

“73.  If the plaintiff is successful after trial there will be a massive upheaval for the defendant.  But it will not affect the plaintiff’s enjoyment of its property at all; there will be a disconnection and that will be that.  Minimal loss and damages will result.”

Delay

29.  Mr Yuen submitted that the defendant had known of the plaintiff’s position as early as March 2007 but did not apply for interlocutory relief until June 2008.  He submitted that on that ground alone interim relief should have been refused.  He sought to rely on the observations of Rogers VP (at §§20-21) in King Fung Vacuum Ltd v Toto Toys Ltd [2006] 2 HKLRD 785:

“Promptly in the circumstances of interlocutory injunctions has been commonly understood to be a period of six weeks or so of unexplained delay and three months with an explanation given for the delay in making application for an injunction.”

30.  That statement is a rule of thumb that has been used as a guide for many years.  As Oliver J, as he then was, said in Radley Gowns Ltd. v Costas Spyrou (1975) FSR 455 at page 469, the court does not countenance a “leisurely stroll to the court door” if a party seeks an interlocutory injunction.  The question of delay is relevant when considering the question of irreparable damage because a party seeking an injunction is unlikely to stand by for any period of time if the party against whom the injunction is sought is truly causing serious and irreparable damage.  Delay in seeking relief may also cause prejudice to a party against whom the injunction is sought because that party may have altered its position in the intervening period and be prejudiced by reason of the delay.

31.  The date from which the period runs is the date on which the person seeking an interlocutory injunction knew or ought to have been aware that interlocutory relief would be required in order to prevent what is said to be irreparable damage.

32.  In this case, albeit there was earlier confrontation that has been referred to in paragraph 12 above, it was not until 10 May 2008 that the defendant was aware that the plaintiff had carried out work in the area of the sewage pipe and it was not until after the test had been carried out on 17 May 2008 that the defendant had been aware that their sewage outflow had been disconnected from the sewer.  It was right and appropriate that the defendant should give 7 days’ notice to the plaintiff (which it did on 22 May) that the matter should be rectified.  In the circumstances there was no delay in the defendant seeking the court’s assistance within a work of the expiration of that notice.

Serious question to be tried

33.  As a subsidiary point, Mr Yuen contended that the judge was wrong in reaching the conclusion that there is a serious question to be tried.  He submitted that the defendant did not have a meritorious case on easement.

34.  The court was referred to a drainage plan relating to the plaintiff’s building approved in June 1965.  While this shows a new manhole at the rear of the plot connecting to the private sewer leading eastwards to Cochrane Street, it does not show any sewer running west from the new manhole.  Mr Yuen invited the court to draw the inference that no private sewer could have existed west of the plaintiff’s property and, hence, it should conclude that the defendant could not possibly succeed on its claim to an easement.

35.  There is, however, a later drainage plan that is markedly different from the earlier plan from which one cannot rule out the possibility of a private sewer running along the entire service lane to the government sewer on Cochrane Street.  Moreover, the drainage plan for the defendant’s property approved in August 1960 shows very clearly an existing sullage drain running from the rear of no. 37 to Cochrane Street.  What is also clear is that the plan of the basement of the building shows a sink and a lavatory draining into a manhole at the rear of the building connected to a manhole situated in the service lane.  Given that the basement was situated below the ground level of Hollywood Road, the notion that the drains of no. 37 drained into Hollywood Road almost defies belief.

36.  These matters apart, there is the letter from the Drainage Services Department to the plaintiff dated 18 January 2008 mentioned in §64 of the judgment.  As the judge noted, it was “unequivocal as to the existence of a private drain running the full distance”.  In my view, unquestionably, there is a serious question to be tried.